Tax Planning for FY 2023-24 for Self-Employed

[moneyMaker]

I was researching some ways that can I save up on taxes, so decided to make this post. Kindly suggest other ways and any caveats you see in my planning.

Claim expenses as Deduction​

Note down any expanses that you make that can potentially be related to the work you are doing.
Some major expenses that can easily be deducted - laptop, phones, office rent, business meetings, domain registrations, plugins/apps purchased.
In some cases not the entire amount of the purchase will be deducted of course. Just make sure to keep all the receipts in a safe place (folder on laptop works).

And expenses done digitally are easy to be accepted of course.

Net Taxable Income = Gross Taxable Income – Deductions

Deductions under Section 80C​

Basically loans,investments in government schemes and insurance. You can only claim up to Rs. 1.5 lakh in total under this section.
For me at least, ELSS seems fine.

TDS Returns​

If you got payments from business and government claimed tax at source, you can claim it in your filing. Keep the receipts in one place.

Penalties​

If tax liability exceeds 10,000 INR, advance tax must be paid every quarter, otherwise penalties will be levied.

Final Calculation​

Taking 12,00,000 per annum as an example

5% of 2,50,000 = 12,500

20% of 2,50,000 = 50,000

30% of 2,00,000 = 60,000

Deductions = 20,000 (for eg)

Net taxable = 1,22,500 - 20,000 = 1,02,500

One can just invest 1,02,500 into ELSS to pay no taxes but the money is locked in for 3 years and in return you get 15-20% (Medium-high risk)

will registering a pvt. lim. help in reducing taxes? (considering the registration and compliance costs, I heard its 10,000 for registration and 2-3,000 per month there after)

(Don't say consult CA, I will (and am) but I like to do my due diligence as well)

References:​

1. https://cleartax.in/s/income-tax-for-freelancers
2. https://cleartax.in/s/tax-saving-calculator

 

[moneyMaker]

For insurance I am considering, Niva Bupa reassure 2.0 for heath and Max life for term.

 

[xross]

Freelancers can use 44ADA with ITR4 and submit presumptive income as 50% of Total Revenue.

 

[hariselio]

Freelancers can use 44ADA with ITR4 and submit presumptive income as 50% of Total Revenue.

This is best and fuss free, no need to maintain any expense proofs and all.. Just cut of 50%, in OP's example show only income as 600000 and deduct 80C + medical(80D?). And NO TAX at all

 

[xross]

(Don't say consult CA, I will (and am) but I like to do my due diligence as well)

Yes, honestly not all CAs know 100% of it or may have a different understanding. They may not have filed 44 ADAs before or handled similar cases. So it is best to do your own research, through channels like this, reddit, youtube, and friends first and then find a Good CA who is able to answer your questions regarding your findings. If one goes without any prior knowledge, you won't know what you are getting into. In the end, having a CA is best, but you just need to find one who knows all the compliances to be handled in such cases. Eg, if the Revenue crosses 20L, (Revenue, not the Income) then you also need to file & pay GST. You also need to prepare Invoices.

 

[TheMentalist]

Freelancers can use 44ADA with ITR4 and submit presumptive income as 50% of Total Revenue.

This is best and fuss free, no need to maintain any expense proofs and all.. Just cut of 50%, in OP's example show only income as 600000 and deduct 80C + medical(80D?). And NO TAX at all

Isn't 44ADA available to Professionals only like Doctors, Lawyers etc.??

 

[hariselio]

Isn't 44ADA available to Professionals only like Doctors, Lawyers etc.??

It covers most of the freelancers, myself IT freelancer and I’m doing it for last three years.

One drawback I repeatedly face is, if we go for any loan, as per the IT returns, bank considers only 50% as the income and process the loan as per that amounts.

For ex, if my income is 20L, but in IT filing I will show only 10L as income due to 44ADA. For loan purposes, bank consider only 10L as income and they won’t see this is ITR 4

 

[moneyMaker]

Eg, if the Revenue crosses 20L, (Revenue, not the Income) then you also need to file & pay GST. You also need to prepare Invoices.

in this case then we have form a pvt. lim and file ITR 2? Can I claim formation of pvt. lim. charges as "expenses"?

 

[moneyMaker]

Indian Travel Blogger wrote about her struggles with tax.

The Taxing Life Of Solopreneurs - Anuradha Goyal

Solopreneurs are not an organized community for the tax authorities to pay heed to but they can do with some help.

www.anuradhagoyal.com